March 5, 2019
After the 350,000-barrel-a-day production cut was announced in early December, prices in Western Canada recovered and the discount between Alberta heavy oil and WTI shrunk dramatically. Producer concerns rose that as the heavy oil discount had narrowed to less than US$10/bbl – below the cost of shipping crude by rail to the US Gulf Coast and analysts estimated a spread of at least US$15 a barrel was required to make crude-by-rail economic.
Imperial Oil Ltd. for example, began cutting its crude-by-rail shipments from 168,000 barrels per day in December to “near zero” in February. Rich Kruger, Imperial Oil’s CEO stated in a conference call in January
“Crude-by-rail should be helping to alleviate this situation in the province. But now, because of the drastic, dramatic manipulation and impact on differentials, take-away capacity is now being idled. That is a sad state, a very tangible example of what we believe is ill-advised, ill-informed, negative consequence of this curtailment order.”
In order to support the higher cost of rail over pipelines, the differentials need to be higher than US$15-$20 per barrel, Kruger said.
Suncor Energy Inc. as well as Imperial Oil Ltd. urged Alberta’s NDP government to abandon its curtailment policy, arguing it had narrowed the price differential to the point where it was no longer economic to export crude by rail. However, by mid-February, Cenovus chief executive Alex Pourbaix said in a conference call he expected the spread between WCS and WTI prices to widen and crude-by-rail volumes to recover renewing confidence in the economics of crude by rail.
“It’s really nice to see $10 differentials but I believe it is highly highly unlikely we’ll be enjoying those differentials for very long into the future,” he said. “So I expect that the rail component is going to be very active later in the year.”
Although ultimately new pipelines will be the best solution to Western producer woes, CN Rail has been working on new initiatives to provide solutions until we get new pipe which include an environmentally friendly way to get Alberta bitumen to market without pipelines and recycle plastic at the same time- CanaPux . It’s an initiative by CN Rail and Wapahki Energy that could save oil producers $15US per barrel while using up plastic that currently just ends up in landfills.
For more information, attend a presentation by James Cairns Vice President of Petroleum and Chemicals at CN Rail discussing the short, medium & long term outlook of crude by rail capacity and CN’s most recent initiatives including CanaPux, March 21st at the Calgary Petroleum Club. Tickets -Members: $50.00 (+GST) Non-Members: $60.00 (+GST)
Go to https://lnkd.in/gq68TEJ To Register.